Focus turns to the Rouble as devaluation pressures continue

Russia’s Central bank has once again widened Rouble trading band this week. It’s the fifth time in the past month that the bank has allowed the local currency to devaluate – but not the last, say experts. Some investment firms are expecting a o

Russians have started buying jewelry and hoarding foreign currency as the Rouble continues to lose value, falling 16 % against the dollar since August.

The Central Bank continues to weaken its defense of the Rouble, while the government assures it won’t allow sharp devaluation. Prime Minister Putin is adamant there will be no sharp Rouble fluctuations.

“With low prices for oil and metals – our traditional export products – we may face a deficit in our trade balance. This in turn has an impact on our national currency. But we will do everything to prevent sharp Rouble fluctuations. We have all the necessary financial reserves.”

The average forecast for the Rouble – Dollar rate at the beginning of 2009 is around 30 Roubles per Dollar. But some experts see signs that a larger devaluation may be on the way.

Investment firm Troika Dialog thinks the New Year holidays are a perfect time for a sharp drop of up to 20 percent in the Rouble’s value as demand for the currency rises.Chris Weafer of Uralsib agrees but says the government hasn’t taken a final decision so far.

“Despite Prime Minister Putin’s comments and statements that there would be no sharp moves in the Rouble, the fact is that the price of oil continues to go lower. Its increasing the cost of defending the Rouble, ie the reserves are going down at quite a big pace, and so the pressure is building. Despite the Prime Minister’s assurances they maybe in a situation where they’ll have no choice but to allow the Rouble to devalue by a higher level.”

Meanwhile Russian companies that borrowed massively in U.S. Dollars last year, have already started to lose money due to exchange rate movements. X5 retail group posted third quarter losses of $15 million, while Russian mobile operators, MTS and Vimpelcon lost $200 and $300 million dollars respectively – much of that blamed on exchange rate costs.

Experts say only state-owned firms are relatively safe now. The government has postponed sharp devaluation to allow them to convert their dollar debts into Roubles. Now it seems that there is not much holding the government back from letting the Rouble fall.